Sometimes the cure is worse than the ill: an occasional look into the life of LSE DESTIN 2010

Book Review: Poor Economics – A Radical Rethinking of the Way to Fight Global Poverty

I recently finished reading Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit Banerjee and Esther Duflo. The co-authors who are rockstars in the field of experimental development economics have pioneered the randomized control trials (RCTs) movement, which offers a rigorous evaluation of development interventions. The book draws on the evidence generated from RCTs but complements it with anecdotes, which offer a nuanced rethinking of how we understand poverty and subsequently design anti-poverty policy.

In a nutshell, the book illuminates the multi-faceted economic lives of the poor. What sets it apart from numerous other books on similar topics is the anthropological approach taken by the economists. The book shines in the authors’ visible efforts to engage closely with the poor and understand how they make decisions and adopt certain coping strategies as narrated through stories in the text. They highlight the inherent contradictions in the choices the poor make while steering clear of romanticizing them. Regardless of your viewpoint on RCTs or J-PAL’s work, Poor Economics is an excellent resource not only for development economists but also anthropologists. Duflo and Banerjee summarize their approach as:

If we resist the kind of lazy, formulaic thinking that reduces every problem to the same set of general principles; if we listen to poor people themselves and force ourselves to understand the logic of their choices; if we accept the possibility of error and subject every idea, including the most apparently commonsensical ones, to rigorous empirical testing, then we will be able not only to construct a toolbox of effective policies but also to better understand why the poor live the way they do. Armed with this patient understanding, we can identify the poverty traps where they really are and know which tools we need to give the poor to help them get out of them. (Page 272)

From the outset, the authors recognize that poverty alleviation is complex and believe that there is little merit in posing generalized questions such as does aid work and consequently coming up with universal responses. Their focus is very much on applied microeconomics research and seeking to explore puzzles such as why don’t more families start new businesses when they do have access to capital at affordable rates, why having fewer children does not translate into healthier or better educated children and why the poor don’t prioritize life-saving immunizations but pay for medicines they don’t need?

The book is divided into two parts. The first part titled “private life”, is split into separate chapters exploring the relation of poverty with food, health, education and family size. The second part focuses on institutions such as banking, entrepreneurship and corruption. In the ultimate chapter titled, In Place of a Sweeping Conclusion, the authors argue that while we are incapable of predicting where growth will happen, and although we have no magic bullets to eradicate poverty, we do know a number of things about how to improve the lives of the poor through particular policy interventions (Page 268). They outline 5 key lessons that emerge as a result of their empirical work and analysis. One of them is that poor countries are not doomed to failure because they are poor or because they have historical misfortune. While it is true that policies often don’t work in these countries, many of these failures have less to do with a conspiracy of the elites to maintain their hold of the economy and more to do with a rectifiable flaw in the detailed design of policies combined with the 3 Is – ignorance, ideology and inertia. Duflo and Banerjee, rather contentiously, argue that with the right expression it is possible to change governance and policy without changing the existing social and political structures. They give examples of marginal actions in “bad” institutional environments such as monitoring government workers and politicians and holding them accountable for failures.

One critique of Poor Economics could be that it is dismissive of the role of politics as being vital to sound policymaking. Tim Besley points out that while Duflo and Banerjee do touch upon political economy, this appears only towards the end, largely as an afterthought and even when treating broader political questions, their approach is focused on the micro level. Personally, I don’t see this as a shortcoming of the book. In the penultimate chapter, Policies, Politics, Duflo and Banerjee challenge the institutionalist view in development economics that is more concerned with macroeconomic policies and holds the belief that if the politics are right, good policies will eventually emerge. They assert that there is no reason to believe that politics always trump policies as exemplified by the example of absenteeism amongst health workers in Udaipur, India where a new policy to tighten the rules for nurse attendance was instituted. Initially, nurse attendance increased but within months the tide turned mainly due to supervisors looking the other way and not adhering to the monitoring responsibilities and nurses taking advantage of a system they knew was doomed to fail. As this examples illustrates, policy failure often happens not due to a deep structural problem but because of lack of agility in policy design thereby reaffirming good politics are not always prerequisites for good policies.

The crux is, therefore, that marginal reforms hold more promise of success than mega plans for poverty alleviation. As the authors state optimistically towards the end:

The political constraints are real, and they make it difficult to find big solutions to big problems. But there is considerable slack to improve institutions and policy at the margin. Careful understanding of the motivations and the constraints of everyone (poor people, civil servants, taxpayers, elected politicians, and so on) can lead to policies and institutions that are better designed, and less likely to be perverted by corruption or dereliction of duty. These changes will be incremental, but they will sustain and build on themselves. They can be the start of a quiet revolution. (Page 265)